Payroll Firms’ Insurance Push Challenges Traditional Agents
Insurance agents in Florida and elsewhere are seeing their turf invaded by a new type of competitor: firms that, historically, have not been considered insurance agencies at all. These are payroll and staffing firms, and their increasing involvement in the insurance market is causing concern among established agents.
“They’re not playing by the same rules as the rest of us,” said Tom Webb, founder and owner of Coastal Insurance Group in Miami Springs, Florida. He was referring to the business practices of payroll companies that are now incorporating workers’ compensation and other insurance products into their service offerings.
Recent mergers, such as the $4 billion deal between Paychex and Paycor, and Automatic Data Processing’s acquisition of WorkForce Software, have fueled this trend. These companies, while primarily focused on managing employee pay and benefits, are also enrolling businesses in workers’ compensation and other insurance coverage.
Historically, many insurance agencies have partnered with payroll companies to provide commercial insurance to employers, agents explained. However, with the growth of companies like Paychex, the strategy appears to be evolving into one of offering insurance as part of a “one-stop shopping” experience for businesses, according to agents.
“It’s a big threat to agents,” said Kyle Ulrich, president of the Florida Association of Insurance Agents (FAIA).
Ulrich’s organization has collected data from insurance carriers that work with both independent agents and payroll companies in Florida. The data reveals that payroll firms are adding as many as 5,000 accounts per month.
“That’s 5,000 clients that are either having their agent of record changed or are purchasing workers’ comp through their in-house insurance agency, meaning retail insurance agents are losing 5,000 accounts,” Ulrich commented on his blog.
One key concern is that payroll firms may lack the in-depth knowledge of insurance law to properly advise clients.
“The business owner thinks, ‘Great, the payroll company will handle everything,'” Ulrich explained, “But they’re not as knowledgeable and may not give the best advice as an agent would.”
For example, Webb, who has over 45 years in the insurance business, pointed out that payroll companies may not be aware of the complexities of workers’ compensation laws, such as the Longshore and Harbor Workers’ Act and the Jones Act, which govern maritime workers.
Payroll firms’ potential failure to properly verify construction subcontractors’ certificates of insurance, especially with the issue of underreported payrolls and undocumented workers, is another concern Webb raised. He emphasized that this could leave laborers unprotected and employers vulnerable.
Some agents worry that staffing firms will soon begin offering other lines of insurance, too. Moreover, some agents have criticized the apparent staffing of payroll divisions with unlicensed agents.
The Florida Department of Financial Services shows that Paychex has its own insurance arm, named Paychex Insurance Agency. While the agency operates in nine Florida cities, records show only two licensed agents covering all the offices. A Paychex representative declined to provide data on the number of insurance policies it sells.
Webb and Ulrich advise that agents proactively communicate with business owners about the potential issues. They suggest owners may be able to opt out of insurance services provided by payroll firms, and cancel or non-renew that part of the contract.
FAIA partners with Heartland Payroll (formerly Ovation) to direct insurance coverage to local agents when Heartland signs up businesses in Florida.
However, not all agents view the growth of payroll companies with concern.
Lori Augustyniak, a Bradenton-based agent and president of Professional Insurance Agents of Florida, noted that competition from staffing firms has been present for years. “One thing I have learned over the years is that you must be able to adapt your business to meet your clients’ needs,” Augustyniak said. “If you’re unwilling to adapt and change you could miss out on a great opportunity to take your business to the next level and possibly get left behind.”
Augustyniak recommends that agents partner with professional employer organizations (PEOs) to provide workers’ compensation coverage, or to establish agreements that provide a finder’s fee to the agency when producers send business to the PEO.
